BrazilGerman industrial businesses adapting models for new normal
A willingness to change and adapt has helped German industrial companies sustain their competitiveness through an ongoing economic crisis – according to a new Alvarez & Marsal report.
2020 was a difficult year for industrial supply chains. German automakers were left short of parts at one point due to lockdowns in Wuhan and Italy, while lack of production in China caused a scarcity of antibiotics at a different stage.
These are some of the disruptions highlighted by Alvarez & Marsal, in a bid to portray the scale of upheaval facing various industries. The firm ran a survey among more than 140 leaders across Germany's automotive, production, chemicals, consumer goods and other sectors to see how businesses were coping.
And the results are surprisingly positive. Nearly 40% of industrial businesses have actually increased their competitiveness since the crisis, while another 40% have managed to keep it unchanged – an impressive feat under the circumstances. For the rest, many are still unsure of where they stand, while only 6% report a fall of position.
According to Patrick Siebert – managing director in corporate transformation services at Alvarez & Marsal, and co-head of the firm’s Germany practice – adaptation is the secret sauce to this sturdy performance.
“When everything changes, supply chains no longer work, production partially comes to a standstill and established sales channels collapse, the losers are those companies that are unable to fundamentally change,” said Siebert.
Indeed, two-thirds of all businesses surveyed claim to have made adjustments across their business in response to the crisis, which explains the large share of “winners.” So where are industrial players making these adjustments? The answers vary, and reflect the widespread impact of the crisis.
Adapting to market changes
The immediate instinct was survival. Revenues dried up instantly after the outbreak, pinning all business hopes on liquidity. The response: cash flow optimisation is the most implemented strategy among respondents – with 80% having made some progress while more than half have fully optimised cash flow. Nearly a third have also scaled back their cost base and made it more flexible, with another 38% still in the process.
Another response to pandemic-induced market changes: a third of industrial businesses have implemented customer experience optimisation strategies – as they compete in a market with low spending and changing preferences.
With these immediate responses in place, the time has come to look ahead. “In many cases, operational adjustments had to be made immediately in order to first ensure continued existence. Strategic and tactical changes are now required to consolidate the positioning in the medium and long term,” noted Phillip Ostermeier, managing director at Alvarez & Marsal’s corporate transformation services arm.
Taking centre stage for the future is digitalisation. Nearly 30% of businesses have accelerated their digital transformation journeys since the pandemic – a response to virtual working arrangements and demands for a digitalised customer journey. Another 53% are still working on this acceleration, driven by the need for strong positioning in the new normal.
Other long term adaptations include repivoted business models, reorganised supply chains and heightened merger & acquisition activity to help restructure the business. “The appetite of market participants for M&A, both among companies and private equity, is growing significantly again,” said Jürgen Zapf, co-head of Alvarez & Marsal Germany.
So businesses are in a good place, and continuing their adaption. For Ostermeier, the goal now is to avoid the trap of change for change’s sake. “It is important to distinguish between meaningful, because sustainable, changes on the one hand and actionism on the other.”
